While the customer is one key driving force for the migration of core systems to the cloud, insurance carriers are also now expected to step up to the plate and make the most of the opportunity to adopt emerging technologies such as the cloud, artificial intelligence (AI) and machine learning (ML) to tack on innovative cloud-native features.

If completed effectively and efficiently, the cloud then becomes a single source of truth and insurance providers can benefit from this. Transforming core systems so that they can reside in the cloud allows the infrastructure to be surrounded and augmented with cloud-native capabilities, extending features in a unique and innovative way.

Finextra spoke to David Ruiz, VP, product development operations at Guidewire Software about their recent report ‘5 Ways the Cloud is Creating Business Value for Insurers’ and why a single source of truth is important.

Guidewire is an Advanced Technology Partner in the AWS Partner Network (APN) and has achieved AWS Financial Services Competency. Competency Partners have industry expertise, solutions that align with AWS architectural best practices, and staff with AWS certifications.

Business agility

Ruiz highlights the importance of agility and how the cloud allows insurance companies to enter new markets or change distribution channels when desired, but without the cost. “Clearly, they want to reduce the total cost of ownership, but you cannot escape the fact the operational burden of managing enterprise software in a data centre is significant.”

He goes on to discuss how the cloud allows business owners and product managers to use the core infrastructure to complete tasks that were previously done by developers. “We have this very robust platform which has very high degrees of complexity and extensibility. A lot of that must be done by developers and we want to flip the model and allow people who understand the business to control those functions.

“Through externalisation, you get a degree of independence and upgradability that you didn’t have before. These are all important when supporting the dynamic delivery of product updates and being able to make changes to a running production system without taking it down. This reduces the cost of ownership and the focus then shifts to optimising business, as opposed to optimising IT operation.”

Customer experience

In other financial industries, the cloud has helped to solve infrastructure issues that smaller companies face. Ruiz reveals that providing a personalised customer experience is an essential part of insurance, and not a feature that the cloud has introduced to the sector.

“The cloud might relieve the operational burden, but you still have to define your policies, otherwise known as your lines of business. The cloud by itself will not help the small carrier compete, but cloud-native capabilities will enable business-oriented tooling, for example.”

Ruiz adds that especially when using third party products, insurance companies are at a tremendous advantage when it comes to innovation, as it acts “like a plug and play model, the add-on is published on the marketplace and can be discovered, purchased and provisioned in an automated fashion.”

Using these capabilities helps smaller organisations position themselves on a “level playing field,” but they “still have to differentiate themselves, get to market and get customers, but it’s not such a hard road.”

Strategy focus

On the point of levelling the playing field, Ruiz reiterates the importance of leveraging cloud-native solutions, such as a “policy cloud or a claims cloud” because again, as this is an essential part of the industry.

“This personalised insurance allows insurance companies - large and small - to use these add-ons as a starting point to help extend the business to market quickly and create unique digital experiences that differentiate their brand.”

He warns that while there will be a degree of disintermediation, this is happening across all business sectors, “it has nothing to do with the cloud or insurance, or anything else, that’s just going to happen.”

The cloud has the potential to revolutionise the insurance industry. If this technology is efficiently taken advantage of, it will optimise the way that products are built and deployed, allow solutions to be packaged up earlier, and make = what Ruiz refers to as ‘Test and Learn’ possible. “Test and Learn lets you dip your toe in the water and see what you recover.

“The challenge has been that Test and Learn offerings have not been previously built on a platform that is robust, but you can start small, grow big and do it all on a proven platform on the cloud. The cloud gives you the assurance that you can test and learn and in turn, advance your business.”

Risk mitigation

The industry has witnessed the evolution of cloud adoption and the dramatic change in attitude towards this emerging technology. Players like Amazon Web Services (AWS) have encouraged insurance companies to be more open and trust the integrity of the security as the sector moves into maturity.

Ruiz concludes: “10 to 15 years ago, even though insurance companies were using Salesforce, they were reluctant to host their financial data in the cloud. Today, the appetite has changed because of the work that AWS has put in to provide secure and compliant cloud infrastructure.

“Insurers are much more open than they were at the start. As a vendor, it’s not just the infrastructure, it’s the stuff that runs on top and the security integrity that maintained there. It’s a two-way conversation now, and it’s not about the carrier asking lots of questions in an apprehensive way.

“We’re in much better shape than we were before because of the maturity of running our cloud business.”